Personnel Administrative Alternatives For Small Businesses

Published in Small Business Magazine | March 15, 2016 

The effective administration of payroll and human resources policies, procedures, record keeping communications and plan design present a huge challenge to every organization.

Recent frequent and sweeping changes in health care programs, compliance requirements and reporting efforts have only served to compound the complexity of this challenge.

While larger organizations may have the staff and expertise to handle what’s required, small and medium-sized businesses often bear the greatest burden. While they have done the best they can, we have seen a huge uptick in the number of companies wishing to outsource all or some of their payroll and human resource functions to outside vendors.

Pamela Evette, CEO, Quality Business Solutions has created the following primer to arm small businesses with the information they need to have more productive and informed discussions.

Where to start?

A natural starting point is to decide whether payroll and HR outsourcing are viable solutions for you and to gain clarity on the options available under that umbrella. The most basic question is what services are offered. The simple answer to that is that most small- to medium-sized businesses will outsource their back-office functions to either a PEO or an ASO, which leads us to the next question.

It is important to note that to enter into either type of agreement, a company must outsource its payroll to its PEO or ASO. For any of these situations, the PEO or ASO is required to be the common paymaster.

What is a PEO?

A PEO, or professional employer organization, provides outsourced human resources services and back office solutions, including payroll, benefits, employee administration and workers’ compensation to other companies.

PEOs deliver their services through a co-employment arrangement in which client workers become joint employees of their company and the PEO, being paid by the PEO directly with the PEO serving as their employer of record for tax and insurance purposes. In other words, the client is the onsite employer and the PEO is the administrative employer. While employers retain control over operations and workforce management in this scenario, hiring a PEO allows them to transfer much of their compliance burden and employer-related risks to the PEO.

PEOs also offer deep HR expertise, allowing them to consult on HR strategy, processes and best practices to create customized programs designed to meet specific business needs and goals.

According to the National Association of Professional Employer Organizations (NAPEO), there are hundreds of PEOs operating in the United States, working with between 156,000 to 180,000 businesses which employ between 2.7 and 3.4 million people. The industry generates between $136 and $156 billion in gross revenues annually.

What is an ASO?

An ASO, or administrative services association, offers many of the same services as a PEO. The main difference is that ASOs do not become co-employers of their clients’ employees. While ASOs handle administrative tasks and may be very active in selecting and securing coverage, the client remains the sole sponsor and retains all risk. All paperwork is filed under the client’s employer identification number (EIN). While ASOs can provide counsel on compliance issues, it is the employers’ sole responsibility to take action.

Companies acting as the common paymaster in an ASO arrangement can still pass along many of the benefits to ASO clients including access to multiple employer plans (MEPs) for 401ks and other voluntary insurance plans. Participation in an MEP affords overall richer plans than those that can generally be offered by smaller employers acting alone.

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